JPMorgan:: Jain Irrigation - Competition to intensify going forward?

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Jain Irrigation Systems Ltd Underweight
JAIR.BO, JI IN
Competition to intensify going forward?


We recently met management of Godrej Agrovet, who has announced
plans to enter drip irrigation systems.
 Formidable Competition ahead? We recently met the management of
Godrej Agrovet, who are part of Godrej Industries and are engaged in
animal feeds, oil palm plantations and agri-input businesses with a pan-
India presence. Godrej Agrovet, who has been indicating potential entry
into micro irrigation business, is looking to announce firm roll out plans
over next 1-2 months. Godrej Agrovet is looking to enter this segment
through a JV with an Israeli micro-irrigation firm. The Israeli firm is
expected to contribute technology, while Godrej Agrovet would market
and distribute the MIS products. While so far there has been sporadic
news flow of large players looking to enter the micro-irrigation market,
we believe that Godrej's plans would mark entry of a player with a strong
balance sheet (FY10A assets of Rs36bn) and wide distribution reach
(12000 dealers & distributors for agri-input business). Mahindra
entered MIS through EPC acquisition. In Feb-11, Mahindra &
Mahindra announced its entry in micro irrigation systems through
acquisition of stake in EPC – an MIS company with operations primarily
in Gujarat and Maharashtra. M&M management has also indicated that
they are looking for few more acquisitions to build up a formidable
presence in this space.
 We don’t see near term impact on incumbents, but watch out for
potential pressure as new players scale up. While we do not expect
Godrej to scale up and build a distrbution network to match Jain
Irrigation in the near term, we believe that market share pressures could
emerge over next 2-3 years as new entrants scale up. We note that the
current competitive landscape for micro-irrigation is largely dominated
by small regional players and there aren’t many pan India challengers to
Jain Irrigation.
 Reiterate Underweight Rating. We reiterate our Underweight rating
and Mar-12 PT of Rs165 based on 15x FY13E P/E. Our target multiple
is at a 25% discount to JI’s historical trading average, but still at a 50%
premium to domestic agri-input players. Key upside risks: adoption of
MIS in canal-irrigated and cereal producing areas; change in govt.
subsidy policy and faster growth in food processing and overseas
businesses.